Buying a Home WHY SHOULD I CONSULT WITH AN ATTORNEY REGARDING THE PURCHASE OF REAL ESTATE? Buying a home is probably the single most important and substantial investment you will ever make in your entire life, having a professional who has been through the procedure before and knows what is required will greatly assist in making the procedure a standard business transaction rather than a nightmare. When you plan to buy a home, or any other property, consulting an attorney prior to signing anything helps you to avoid or minimize problems before, during and after the transaction. REMEMBER, you want to buy the house or property, not problems or a lawsuit! THE OFFER TO PURCHASE When you find a house or property you want to buy, very often the legal process starts with a written offer from you to the current owners to purchase the property. This offer should contain some but not necessarily all the important terms and details about the sale, the financing that will be involved, inspection to be performed and what you are willing to commit to in order to buy the property. A complete offer should contain the following: 1. The names and addresses of the buyers and sellers, 2. The location of the property and/or the address of the property, and if known, the title reference where the deed to the property is recorded. (Including this last bit of information eliminates any potential confusion about the property you are offering to purchase.) 3. The amount you are willing to pay for the property and the amount of money you are putting down as a deposit of earnest money. 4. When the closing will take place. 5. What are the conditions which must be fulfilled prior to the sale, i.e. financing, inspections, engineering, repairs, certifications, etc. 6. How long the offer to purchase shall remain valid. NOTE:If you have a verbal understanding with the seller about a specific term or condition of the sale, it should be included in the written offer. THE PURCHASE AND SALE AGREEMENT Both an offer to purchase and a purchase and sale agreement (P & S) are legal contracts, no matter what anyone tells you. Before you sign either one, it is a good idea to consult with an experienced real estate attorney. He or she can explain what your rights and obligations are under these legally enforceable agreements to you. With proper advice, you can avoid potential problems and putting your hard earned deposit money at risk of loss. In Massachusetts, and many other states, for a contract or any terms or agreements involving real estate to be enforceable in Court or otherwise, THE AGREEMENT MUST BE IN WRITING AND SIGNED BY THE PARTY RESPONSIBLE TO PERFORM. DO NOT be naive and rely on verbal promises. GET IT IN WRITING!!! TITLE EXAMINATION One of an attorney's most important duty's in representing a buyer is to examine the records in the County Registry of Deeds where the records for property are kept. This is known as the "title search" or "title exam". Your attorney will check these records to ensure that the Seller actually owns the property they are offering to sell. Your attorney will also determine the "marketability" of the property, in other words, they will ensure that there is no unresolved matter that could affect your ownership interest in the property. They will make sure that any old liens are released or cleared, and if there are still any outstanding, that they will be paid off at or before the closing. (You do not want to buy a lawsuit or a problem requiring further legal resolution when you purchase property.) Knowing about problems in advance gives you and your attorney the opportunity to make the seller resolve the problem PRIOR TO SALE. In the title search, the attorney determines the answers to the following questions: - Does the Seller actually own the property, and may he or she properly sell it? - Are there other owners who are required parties to the transaction? - Are there any mortgages, judgments, attachments or liens that must be paid to "clear" the title? - Are there any documents, permits or forms such as releases of liens for estates or taxes that are required prior to the sale to clear the title of a problem? - Will there be a delay in obtaining the required forms or paperwork? - Will issues postpone the closing? - Should an escrow amount be set aside to take care of the problem if it is not resolved by a set deadline? - Are there any restrictions on use, covenants related to conservation areas, easements or rights which may limit or interfere with your intended use of the property? - Are there unpaid taxes or water and sewer charges or other assessments for improvements such as sidewalks or sewer? - Are there encroachments (structures, fences or walls) that go beyond the lot lines of the property or is someone else's structure or fence within the property lines? The attorney certifies that the title is clear by providing a certificate of title to the lender and the buyer. This certificate will spell out any exceptions to the clarity of the title. In some circumstances a title may not be totally clear, but the exception may not interfere with the intended use of the property. For example, a utility easement over a corner of the property, while considered an exception on the title certificate might not necessarily interfere with the use of the property as a dwelling. Knowing about such matters in advance can make all the difference in the world. The most common set of standards used by attorneys to resolve legal problems about the title to property in Massachusetts is a set of rules known as the Real Estate Bar Association (REBA) Conveyancers' Standards. These give acceptable standards, ways and requirements to resolve many common issues which arise in the purchase and sale of property. TYPES OF DEEDS In Massachusetts, a QUITCLAIM DEED is a common way to transfer title to real estate. A quitclaim deed contains a guarantee or covenant that makes the seller responsible for problems, liens or claims which attached to the property only while the seller was the owner of the property. This seller's collective responsibility is known as the Quitclaim Covenants. A WARRANTY DEED was more commonly used in the past in Massachusetts. A warranty deed contains more guarantees and obligations on the part of the seller. This type of deed makes the seller responsible for all problems, claims, liens or encumbrances on the property before the seller owned the property as well as while the seller owned the property. The seller's guarantees under this type of deed are known as Warranty Covenants. In Massachusetts, the customary practice is to convey to the Buyer whatever type of deed the Seller received when they bought the property. So, if a Seller's purchase deed indicates Quitclaim covenants, their sale deed should also be a Quitclaim deed. DIFFERENT TYPES OF PROPERTY OWNERSHIP IN MASSACHUSETTS TENANCY BY THE ENTIRETY In Massachusetts only a husband and wife may own property jointly as tenants by the entirety. The property passes to the survivor at the death of the first spouse and in Massachusetts a special protection against attaching creditors is given to the parties as well. JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP Any two or more people may own property as joint tenants. The property passes to the surviving owner(s) at the death of one of the owners. TENANCY IN COMMON Any two or more people may own property as tenants in common. The property passes to the heirs of an owner who dies, not to the surviving owners. CLOSING DOCUMENTS Usually, your attorney will be responsible for obtaining, preparing and checking all required documents necessary for the transfer of title, financing the purchase, and any related documents to facilitate the closing, which typically include the deed, the mortgage, promissory note and a RESPA or HUD-1 settlement statement, better know as the HUD. Each lender has its own terms and conditions which must be met. Some common requirements are a municipal lien certificate, a plot plan, and title insurance for the benefit of the lender. These will all be obtained at the buyer's expense. The items provide the lender, as well as the buyer, assurances that the property is a good investment. The cost of these items is given in detail in the HUD. The HUD sets out in detail all the charges and expenses and payments made for both the Buyer and Seller as part of the transaction. As part of the closing, both parties are obligated to review and sign this statement, indicating that it is an accurate reflection of the transaction. Title insurance is a one-time expense that provides insurance coverage for certain title problems. Most lenders require the purchase of a Lender's Title Policy to protect their interest and investment in the property. An Owner's Title Policy is highly recommended, as it is a one-time expense and provides coverage for title defects as long as the Buyer owns the property, it can save purchasers from great headache and enormous expense if something occurs down the road. The attorney for the Buyer will handle the final transfer of title papers, recording of the deed, mortgage and all releases and the transfer of money to pay the sellers, all lien holders, taxes and outstanding charges related to the property. All these charges and expenses are listed on the HUD. Prior to the time of the closing, figures will be agreed upon to calculate the full transaction between the parties. Figures are included for payment of the purchase price, adjustments for taxes, fuel oil, rent (if applicable) loan charges, prepaid interest, brokers' commissions, credits and payments to the buyer for payments made or loan proceeds, etc. All the details of the financial adjustments and payments are contained on the HUD. Your attorney should explain the documents and figures. If you don't understand something, ask questions until you do. AFTER THE CLOSING After the closing, the attorney's job is not yet complete. The deed and mortgage and all lien releases must be recorded at the appropriate Registry of Deeds. All outstanding mortgages or liens must be paid as part of the transaction. Sometimes even if liens or claims against the property are paid on the day of the sale, it may take a few weeks or even months before the mortgage discharge gets issued by the lending banks or mortgage companies. It is the attorney's responsibility to follow up and make sure these items are issued and properly recorded.